I have a credit card with a $700 limit and I am curious how to optimize credit gain with it. Right now, I use it once a month (usually on something small like a drink from a convenience store or something) and pay it off immediately. I am basically using it like a once-a-month debit card for tiny purchases.

I do this because I always hear that loading up your credit card to its limit looks bad (as if you "need" to use it, and are therefore more risky). Is what I am doing optimal or can I improve my credit in other ways?

This card also has an annual fee (something like $30) so part of me also wonders if I am wasting money. I don't particularly use/need credit cards, but I don't want to lose out on building credit, either, in case I want a house someday. I have student loans but I don't know how much those actually help.

I pay off all my debts each month otherwise.

8 Answers 8


First I would like to say, do not pay credit card companies in an attempt to improve your credit rating. In my opinion it's not worth the cash and not fair for the consumer.

There are many great resources online that give advice on how to improve your credit score. You can even simulate what would happen to your score if you did "this".

Credit Karma - will give you your TransUnion credit score for free and offers a simulation calculator.

If you only have one credit card, I would start off by applying for another simply because $700 is such a small limit and to pay a $30 annual fee seems outrageous. Try applying with the bank where you hold your savings or checking account they are more likely to approve your application since they have a working relationship with you.

All in all I would not go out of my way and spend money I would not have spent otherwise just to increase my credit score, to me this practice is counter intuitive.

You are allowed a free credit report from each bureau, once annually, you can get this from www.annualcreditreport.com, this won't include your credit score but it will let you see what banks see when they run your credit report. In addition you should check it over for any errors or possible identity theft. If there are errors you need to file a claim with the credit agency IMMEDIATELY. (edit from JoeT - with 3 agencies to choose from, you can alternate during the year to pull a different report every 4 months. A couple, every 2.)

Here are some resources you can read up on:

Improve your FICO Credit Score

Top 5 Credit Misconceptions

9 fast fixes for your credit scores

  • 1
    @AgainstASicilian Are you in good standing with the student loans now? Call up the student loan and ask them to remove those marks against you. Depending how long you have been in good standing they may be happy to help you out.
    – Eric
    Jun 20, 2012 at 17:09
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    @AgainstASicilian Like Eric U said, you should defiantly contact the lender and ask them if they can remove those marks. You can even explain your situation and why you were unable to pay, tug on those heart strings :). From my personal opinion it is not worth paying money in order to marginally increase your credit score, so if I were in your situation I would close that account and even may ask for my annual fee to be refunded -- explaining how I am unhappy with such an outrageous fee for such a small limit. They charge you 4% just to have that credit line (CRAZY!!!). Jun 20, 2012 at 17:15
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    @KirillFuchs Made an account on the Karma site. Credit score 690. Is this high enough to get a second card without a fee and then close the first? Jun 20, 2012 at 17:19
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    @AgainstASicilian You can apply for a new card before you cancel the existing one in order to not have your credit score drop before applying for the new card. You should be able to easily find a credit card without a fee, what will vary is how low of an APR you can get.
    – Eric
    Jun 20, 2012 at 17:23
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    @AgainstASicilian I agree with Eric apply for a new card before canceling your old one. Your approval for a new card is also dependent on your revolving debt(other loans you have outstanding). About negotiating, it can be hit or miss, I'm a firm believer in "honesty is the best policy" If you were laid off let them know, you can add how you have a steady income and plan to pay it off in full in X amount of time. If you just forgot the due date or thought you payed that month let them know that. Jun 20, 2012 at 17:29

Great question.

First, my recommendation would be for you to get a card that does not have a yearly fee. There are many credit cards out there that provide cash back on your purchases or points to redeem for gift cards or other items. Be sure to cancel the credit card that you have now so you don't forget about that yearly fee. Canceling will have a temporary impact on your credit score if the credit card is your longest held line of credit.

Second, it is recommended not to use more than 20% of all the available credit, staying above that line can affect your credit score. I think that is what you are hearing about running up large balances on your credit card. If you are worried about staying below the 20% line, you can always request a larger line of credit. Just keep paying it off each month though and you will be fine.

You already have a history of credit if you have begun paying off your student loans.

  • 3
    +1 for no annual fee. (I edited 20%. See my answer above, the ideal range is 1%-20%.) Jun 21, 2012 at 14:12

I answered a similar question, How will going from 75% Credit Utilization to 0% Credit Utilization affect my credit score?, in which I show a graph of how utilization impacts your score.

In another answer to Should I keep a credit card open to maintain my credit score?, I discuss the makeup of your score.

From your own view at Credit Karma, you can see that age of accounts will help your score, so now is the time to get the right cards and stay with them.

My background is technology (electrical engineer) and MBA with a concentration in finance. I'm not a Psychology major. If one is undisciplined, credit can destroy them. If one is disciplined, and pays in full each month, credit is a tool.

The quoting of billionaires is a bit disingenuous. I've seen people get turned away at hotels for lack of a credit card. $1000 in cash would not get them into a $200/night room. Yes, a debit card can be used, but the rental car and hotel "reserve" a large amount on the card, so if you don't have a high balance, you may be out of town and out of luck.

I'll quote another oft-quoted guru: "no one gets rich on credit card rewards." No, but I'm on track to pay for my 13 year old's last semester in college with the rewards from a card that goes right into her account. It will be great to make that withdrawal and not need to take the funds from anywhere else. The card has no fee, and I've not paid them a dime in interest.

By the way, with 1-20% utilization ideal, you want your total available credit to be 5X the highest monthly balance you'd every hit.

Last - when you have a choice between 2% cash reward, and the cash discount Kevin manages, take the discount, obviously.


In addition to the already good answers:

I am assuming you are playing a long game and have no specific need for a high credit score in the next couple of years. This list is just good practice that will raise you score.

  1. Have more than one line of credit.
    • Feel free to cancel ones that have a fee IF you can't get the fee removed and ONLY IF you already have a replacement line of credit established. (Better to take a hit on your score temporarily than waste money)
  2. Use your credit limit between 1 and 20%. Never above 30%, not below 1% if you can help it.
    • But in deference to the other wise advice, I wouldn't spend money you aren't already spending to meet some percentage goal. That is silly.
  3. Always always always pay off your obligations in full every single month. (I make a payment on every paycheck with my bank's bill pay just to keep myself in check)
  4. Secure your accounts properly. Different bank passwords, and good strong ones.
  5. Have your multiple accounts with different banks. I also like to have my credit separate from my checking and saving accounts. Exceptions on that might be a credit union.
  6. Read your statement every single month. Verify every single transaction.
  7. Learn your rights. In the US you have 60 days to dispute a charge. Learn how to dispute a charge with your lender.
  • What is your opinion on my current card usage strategy? Jun 20, 2012 at 18:36
  • @AgainstASicilian - it is great. You aren't hurting yourself in any way. Your question was "Optimal" though, so your annual fee and low usage are not "optimal". Please note, I don't do everything I listed above. Too much work.
    – MrChrister
    Jun 20, 2012 at 18:56
  • @MrChrister Great point on using different bank passwords, use different usernames and passwords for sites in general. With the recent linkedin password files published, those that used the same account and password for other sites needed to login to each one and update that password. I learned my lesson the hard way.
    – Eric
    Jun 20, 2012 at 19:23

Or here's a better idea: don't have a credit card at all. They offer no real benefits and plenty of dangers. Don't take my word for it, though:

"I tell every student class I get, high school students, university students, you know, they'd be better off if they never used credit cards"
- Warren Buffet (Net worth: $44 billion)

Before anyone says anything about using credit cards "wisely" and getting the rewards points, I can save 15% on many kinds of large purchases ($100+) using cash. You won't find a reward system offering that level of incentive. Two recent examples of cash discounts:

After I bought my house I needed a lawnmower and a my wife wanted a new vacuum cleaner. Went to Lowe's and found the ones we wanted. They were $600 combined. Found the manager, stuck five $100 bills in his hand and said "this is what I have, and that is what I need." 16.6% saved.

Bought my daugher a bed recently. Queen box spring and mattress were on sale for $300 but it didn't come with the rails, which they wanted $50 extra for. Went to the bank and got $320 in cash from the bank, walked in, set it in his hand and said, "I need the bed box spring and rails, tax included." He replied, "Sorry man, I can't. I'm already taking a loss on..." Then he stopped mid sentence, looked down at the cash again and said "Hold on. Let me ask my manager." Manager walks over, guy explains what I said, manager looks at the cash and says "Make it happen" 14.3 % saved.

As for purchasing a home, it is a myth that you need a credit score to obtain a mortgage for a home. Lending institutions can do manual underwriting instead of just relying on your credit score. It is a little tougher to do and banks usually have stricter requirements, but based on the information the OP has given in this and other questions, I think he can easily meet them.

  • 7
    Kevin, I don't dislike the points made, but judging from the previous 20+ comments (which I removed), I think you were down-voted because this really doesn't address the OP's goal of improving their credit. Do you have any advice on addressing the "can I improve my credit in other ways" and "I want a house someday" aspects of the question? If someone doesn't use credit cards as you suggest, how else could they establish a reasonable credit history? Something addressing that would make this a better answer. Jun 21, 2012 at 13:26
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    I reversed my downvote - Kevin - you get a +1 from me as I consider the value of the "cash discount." It doesn't answer the question, but I agree with you, there's value in this, and appropriate to mention in response here. Jun 21, 2012 at 14:39
  • Warren Buffett is ignoring everyone with a net worth of 1 billion+ that engaged in leveraged buyouts. But don't worry, he criticized them too.
    – CQM
    Apr 4, 2013 at 5:33

If you have self control and a good handle on your finances, which it sounds like - I suggest the following:

  1. Shop around for a credit card that has no annual fee, and also gives you something like cash back or travel points the more you use it.
  2. Put as much of your monthly expenses on the card and use the card as much as possible for day to day living.
  3. Pay it off completely each month.

Note: #3 is important - if you're not able to pay it off each month don't do this because it will cost you a lot in interest. Make sure to check how interest is calculated in case you don't pay it off in full or miss the due date for a month.

If you can do this you'll earn some good benefits from the card using money that you're going to spend anyway, as well as build your credit profile.

Regarding annual fees -

  • Try to stay away from the annual fee cards if you can to make it even cheaper.
  • Talk to your bank - sometimes they have cards that will have fees waived if you have certain types of accounts with them.
  • Another option to consider is that the cashback from a card can cover the cost of your annual fees if you're expecting to charge a lot to it.

Most business credit cards do not report to the personal credit report unless the person pays the card late. Given that fact, any debt carried on these cards does not hurt the credit score if it is not reported. You can carry credit card debt on these cards without hurting your credit score. Just apply for business credit cards now to start building this segment of your credit.

  • If you work for a large company, and they issue a card for travel, entertainment, etc, that may be. But a small busines owner with his own card will see it on his report. Apr 23, 2013 at 13:53
  1. Get rid of your collection accounts.
  2. Get rid of your past due accounts.
  3. Get rid of your charge offs and liens.
  4. Get rid of your late payments.
  5. Check your credit limit(s) and evenly distribute the balances you are carrying.
  6. Do not close your credit cards.
  7. Open business credit cards.
  8. Keep your old credit cards active.
  • 2
    No need to shout. Apr 23, 2013 at 13:53
  • @JoeTaxpayer Can one open business credit cards if they don't own or operate a business? (I fixed the shouting too). Apr 23, 2013 at 20:56
  • I've seen a difference between cards issued through large employers (not hitting credit report) vs small business where it does. Apr 23, 2013 at 21:06

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